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Designing Auctions in R&D: Optimal Licensing of an Innovation

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  • Brocas Isabelle

    () (University of Southern California)

Abstract

We study an R&D game in which a research unit undertakes a (non-observable) research effort and, if an innovation is obtained, auctions licenses to a pool of producers. Each producer has a private valuation for the license and suffers a negative externality when a competitor becomes a licensee. We compare the optimal rule for the allocation of licenses and the level of research effort implemented by the innovator in two scenarios: free licensing by the innovator vs. optimal regulation. As long as the cost of public intervention is sufficiently low, free licensing induces two different types of inefficiencies: an excessively high price for licenses and a suboptimal dissemination of knowledge, and an excessively low research effort. This indicates that public intervention should combine the following measures: (i) an antitrust agency which limits the royalties that innovators can ask for a license, and (ii) a direct subsidy to research activity.

Suggested Citation

  • Brocas Isabelle, 2006. "Designing Auctions in R&D: Optimal Licensing of an Innovation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(1), pages 1-41, August.
  • Handle: RePEc:bpj:bejeap:v:topics.6:y:2006:i:1:n:11
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    Cited by:

    1. Кучаев А.И., 2015. "Повышение Эффективности Механизма Государственного Заказа На Ниокр," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 51(2), pages 70-88, апрель.

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